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Food, Beverage and Grocery OVERVIEW

The global food and agricultural industry for 2016
was about a $8.0 trillion market, according to Plunkett Research estimates, or
about 10% of the world's GDP. Global
food exports totaled $1.33 trillion in 2015, according to the World Trade
Organization (latest data available).
While it is obvious that food is of equal importance to all people on
planet Earth, the relative cost of that food is not equal. It varies widely due to such influences as
location, local food industries and the availability of proper infrastructure
for food transportation and storage. In
the U.S., food accounts for approximately 13% of a typical household's
spending, ranking third behind housing and transportation, per the U.S. Bureau
of Labor Statistics. In Asia, food ranks
first, estimated at 23% of consumer spending, followed by education and
housing. In America, the average household spent $7,023 on
food during 2015, up from $6,759 the previous year. That included $4,015 spent on food for
at-home dining, and $3,008 for dining out. The retail grocery store and supermarket
industry in the U.S., with 40,768 stores, totaled about $706.9 billion in
revenues during 2016, up from $680.7 billion the previous year, according to
U.S. Department of the Census figures.
However, food products and beverages in America and elsewhere are sold
at a wide variety of stores other than supermarkets. To get the full U.S. picture, it is important
to

The global food and agricultural industry for 2016
was about a $8.0 trillion market, according to Plunkett Research estimates, or
about 10% of the world’s GDP.Global
food exports totaled $1.33 trillion in 2015, according to the World Trade
Organization (latest data available).While it is obvious that food is of equal importance to all people on
planet Earth, the relative cost of that food is not equal.It varies widely due to such influences as
location, local food industries and the availability of proper infrastructure
for food transportation and storage.In
the U.S., food accounts for approximately 13% of a typical household’s
spending, ranking third behind housing and transportation, per the U.S. Bureau
of Labor Statistics.In Asia, food ranks
first, estimated at 23% of consumer spending, followed by education and
housing.

In America, the average household spent $7,023 on
food during 2015, up from $6,759 the previous year.That included $4,015 spent on food for
at-home dining, and $3,008 for dining out.

The retail grocery store and supermarket
industry in the U.S., with 40,768 stores, totaled about $706.9 billion in
revenues during 2016, up from $680.7 billion the previous year, according to
U.S. Department of the Census figures.However, food products and beverages in America and elsewhere are sold
at a wide variety of stores other than supermarkets.To get the full U.S. picture, it is important
to consider food and beverage sales at 61,339 non-traditional food-sellers such
as wholesale clubs and dollar stores, estimated at $456.0 billion by Plunkett
Research as well as $184.4 billion in revenues at 106,698 convenience stores
(not including convenience store gasoline sales).

Estimates of total food industry revenues can
vary widely due to many factors.For
example, a large portion of supermarket sales is made in non-food items such as
drugs and personal care goods, and many types of non-food stores sell small
amounts of specialty food products.Also, the National Restaurant Association’s estimates of total annual
revenues ($782.7 billion projected for 2016, up from $709.0 billion in 2015)
are always higher than figures gathered by researchers at the Census, and both
groups may miss revenues generated by caterers and other non-traditional
prepared food sellers.On a broad basis,
$1.90 trillion to $2.10 trillion is a reasonable estimate for total U.S. retail
food and beverage industry revenues for 2016, with growth of about 3% expected
for 2017, unless an economic downturn hits.

Outside the U.S., food retailing is rapidly
becoming more diverse and sophisticated in emerging markets.For example, modern convenience stores are
widespread in major Asian cities, such as the large number of highly popular
7-11 stores found in Thailand.Also,
discount stores that sell food products, among other items, are increasingly
popular, evidenced by the rapid growth of Wal-Mart in Mexico, and the continuing
fast spread of stores in China owned by Wal-Mart and its competitors.Nonetheless, outside of the major cities,
much of the food retailing in emerging markets is conducted by very modest
local markets, often run as family operations.

Food sales by restaurants are spreading very
quickly in the emerging world as well.For example, America’s Yum! Brands, operator of KFC and Pizza Hut, grew
very quickly in China, where it operates more than 4,000 units in locations
ranging from the giant metropolises such as Shanghai and Beijing to remote,
smaller cities of growing importance. (Yum! has spun-off its China restaurants into
a separate company.) Yum! Brands is a
true leader in this regard, and it is already expanding in Africa, which is the
next frontier in the emerging world.Yum! Brands’ success has spawned a great number of domestic competitors within
China.

U.S.
farm sector gross receipts for crops, livestock and other products were
projected to be $371.9 billion in 2016, according to the U.S. Department of
Agriculture.

America’s agricultural sector enjoyed $133.1
billion in exports in 2015, down from $150.0 billion in 2014 and $144.4 billion
in 2013.U.S. agricultural imports in 2015
were $113.8 billion, up from 2014’s $112.0 billion and 2013’s $104.4 billion.

Aquaculture produced an estimated 160 million
tons of fish globally in 2013, up from 66.1 million tons in 2010, according to
the UN Food and Agriculture Organizations (FAO).By 2030, aquaculture is projected to provide two-thirds
of total fish for human consumption.Fish farming is extremely active in the U.S. as well as in nations such
as the Philippines, China, Norway and Vietnam. Tilapia, salmon and shrimp are among the
leading products.

The global processed food and beverages
industry is dominated by a handful of multinational corporations.Among the leaders are Unilever, Cadbury
Schweppes, Kraft Heinz, Mendelez International (formerly part of Kraft Foods,
Inc.), General Mills and Nestlé.Unilever, for example, estimates that 150 million people per day
purchase its products, ranging from Knorr soups to SlimFast diet meals, in 150
nations around the globe.

According to Plunkett Research estimates, U.S.
food production of all types, from animal processing to packaged foods
manufacturing (but not including the agricultural sector), totaled about $969.0
billion in 2016, employing 1.507 million.This includes foods manufactured for export, but does not include
tobacco products. Nearly 1 million
additional people are employed in wholesale food distribution, plus nearly 3
million employed in food and beverage stores.

The entire food industry, from growing to
processing to retailing, is an extremely competitive field where profit margins
are typically so low that it is often challenging to maintain
profitability.As up and coming
generations such as Generation Y (Millennials) become more important parts of
the consumer base, consumers overall are having a very profound effect on the
food products industry, driving change, making new demands and creating new
opportunities for those companies that are nimble enough to take advantage of
them.Consumers are worried about
nutrition, the source of ingredients, the effects of chemical ingredients on
their bodies, and in particular, the safety or health values of the food they
give to their children.In nations and
regions containing middle to upper income consumers, this is nothing less than
a food industry revolution in the making.

Many new companies have arisen to take
advantage of these trends, and they have often seen tremendous growth.Amy’s Kitchen, for example, a relatively new
company, focused on more natural packaged meals has enjoyed soaring revenues
and popularity for its vegetarian, gluten-free and non-GMO foods.Chobani, a pioneer in the Greek yogurt
business, has likewise seen exceptional growth.

In North America, Asia, Europe and elsewhere,
producers and retailers of foods (including restaurants) are faced with the
challenge of positioning their brands to represent consistent quality and food
safety.Companies that rise to this
challenge will have significant competitive advantage.This food safety positioning will go
hand-in-hand with growing demand to satisfy additional consumer concerns about
environmentally-sound food production methods, fair trade, fair use of labor
and humane treatment of agricultural animals.However, a focus on such concerns as fair trade can add dramatically to
costs. Changing tastes have been extremely hard
on old-line food companies, ranging from McDonald’s, on the restaurant side, to
Coca Cola on the beverages side and Kellogg, General Mills and Kraft Heinz on
the packaged foods side (where profit margins have generally been very low).

The
biggest recent news in cross-border investment in food companies is coming from
Brazil.3G Capital Partners LP, an
aggressive, Brazil-based private equity company, has been buying up major North
American food companies.In 2013, it
acquired H.J. Heinz Co., with the assistance of funding from Berkshire
Hathaway.It also acquired Burger King
Worldwide and Tim Hortons, Inc., the well-known Canada-based doughnut chain.More recently, in early 2015, it announced
that its H. J. Heinz unit acquired Kraft Foods Group, maker of cheeses and
packaged foods.The merged companies,
known as Kraft Heinz, own some of the world’s best known food brands and enjoy massive
combined revenues.In February 2017, Kraft
Heinz briefly considered making an offer to purchase global food and consumer
goods giant Unilever.Meanwhile parent
company 3G announced that it will acquire Popeye’s, a U.S. fried chicken chain.

In the U.S. and Europe, where economies have
been enduring slow growth over several years, consumers are shopping for
bargains.Generic store brands are
growing in market share while higher-priced name brands have suffered from slow
sales.Supermarket chains such as Kroger,
Safeway and HEB have been forced to modify their merchandising to meet the
needs of cost-conscious shoppers.

Overall, private-label sales (in supermarkets,
drug stores and mass merchandisers) grew to reach $118.4 billion in the U.S. in
2015 over the previous year, according to the Private Label Manufacturers
Association.Supermarkets’ private label
sales account for about 19.2% of all supermarket revenues.(This is the latest data available.)

In the U.S., Mexico and elsewhere, the
supermarket industry is under attack by discounter Wal-Mart in particular.In America, Costco and Target are also strong
competitors in retail groceries.(Wal-Mart
gets substantially more than one-half of its U.S. revenues from grocery
sales.)Vast changes have swept through
the supermarket sector as a result, as major firms such as Safeway and Kroger
have cut prices and lowered operating costs dramatically, while Albertson’s
sold itself to private investors.Wal-Mart
has by far the leading market share of American supermarket sales.Meanwhile, America’s leading drugstore
chains, CVS and Walgreens, have been dramatically expanding their food and
beverage departments.

In the U.S., at the end of the Civil War in
1865, farmers made up about 55% of the workforce.By 1900, 38% of working Americans still
toiled on 5.7 million farms—growing enough food to feed the nation’s population
of 76 million.Today, only about 2.5% of
the U.S. workforce is employed on farms.The total number of American farms is down to a little over 2 million,
but that dwindling count of farms and farmers meets the domestic needs of a
national population that is more than four times the population of 1900.

Since the early 1900s, the amount of manpower
required to grow food has plummeted.The
relative cost of an American family’s food has likewise dropped
impressively.According to the Federal
Reserve Bank of Dallas, in 1901 46.4% of a typical American household’s income
went to food.By 1995, that ratio had
dropped to 14.0%.Here’s another way to
look at it:In 1919, at the end of World
War I, a basket of staple food items (one pound each of coffee, bacon, bread,
beans, onions, lettuce and ground beef, plus generous amounts of sugar,
tomatoes and other items) cost what an average American would earn in 10 hours
of work.By 1995, that cost had dropped
to less than two hours.The drop has
been caused by increases in total personal income, as well as improvements in
food technologies.

Outside the U.S., other industrialized nations
made outstanding strides in food cost, availability and quality through most of
the past 100 years.Many developing
nations have seen vast improvements as well.(Ironically, while we all need food to live, and we tend to derive
tremendous enjoyment from good food, we nonetheless do a poor job of
compensating most people who work in the food industry.From fry cooks to chicken pluckers, many
people who work in the food sector receive very low wages.)

Meanwhile, throughout much of the world,
technology and globalization have revolutionized the way that we grow food, as
well as the way that we transport, process, package, purchase and cook it.Waste and spoilage are reduced (but still a
problem) thanks to innovations like flash freezing, good highways and
refrigerated trucks.Furthermore, it’s
an everyday occurrence for consumers in the U.S., Asia or Europe to pick up
strawberries from New Zealand or mangos from Mexico in the fresh produce
section of the local supermarket.Globalization has led to the rise of massive multinational food
processing companies like Nestlé and Unilever, which often sell their foods
under local names in local languages, after producing them in regional
factories worldwide.

The types of technologies affecting the food
industry have evolved significantly over time.From mechanized tractors, agricultural technology has moved on to become
high-tech.Today, computerization has
made marked changes in food distribution:Electronic data interchange ensures that inventories and shipments are
well managed so your local grocer doesn’t run out of the products that are
selling quickly.Point-of-sale systems
at the cash register capture minute-by-minute sales data.Biotechnology is making sweeping changes at
the ground level—in seed stocks and agricultural animal health.In fact, gradual genetic improvement of grain
seeds like rice and wheat, combined with better fertilizers and other
technologies, created a “green revolution,” enabling nations like China and
India to go from agonizingly underfed populations to a large degree of food
self-sufficiency.Now, genetically modified
seeds are gaining ground with the promise of crops that not only resist insects
and have extremely high yields per acre, but also produce high levels of
desirable nutrients and vitamins.

Health concerns are significantly impacting all
sectors of the food industry, as obesity levels have risen to alarming
proportions in the U.S., Mexico, Asia and elsewhere.Various branches of the U.S. government,
including the Food and Drug Administration (FDA), along with a host of consumer
groups, are squaring off with food producers over nutrition and the
responsibilities and ethical issues inherent in the production and marketing of
food.Childhood obesity is a particular
target.In the U.S., where soaring
health care costs are a prime concern, $147 billion in yearly medical costs
were linked to obesity in 2008, a number that is likely more than $200 billion
today.In the massive health care act
passed in 2010, the U.S. federal government set up a requirement that all
restaurant chains with 20 or more restaurants post calorie counts for menu and
buffet items.

Even local governments, such as the cities of
New York and Chicago, are increasing regulations aimed at the food
industry.

Meanwhile, the soda industry is going through
immense changes due to consumer trends.At one time, soda manufacturers and marketers assumed that there was
limitless worldwide growth to be enjoyed in soda sales.However, the real growth in beverages lately
has been in bottled waters and energy drinks, while soda sales have been very
disappointing.

As a result, recent years have seen dramatic
regrouping at PepsiCo and Coca Cola. This includes the fact that the firms
announced their intent to acquire the massive companies that did much of their
bottling under license agreements.These
soft drink giants have attempted to cut costs, streamline operations and
distribute new products.

Not to be overlooked when
considering food industry trends is the potential effect of global warming on
agriculture.While the United Nations
predicts that food production needs to increase by as much as 70% from 2010 to
2050 due to a much larger world population and growing demand for food in
nations with increasing household incomes, some scientists are predicting much
lower crop yields in some areas due to higher average temperatures as global
warming worsens.On the other hand, some
observers think that rising temperatures could increase the growing season and
agricultural output in regions that currently have cold climates.Another potential problem is that higher
temperatures may lead to increased drought in many agricultural areas.Yet another potential problem is growing
levels of greenhouse gases such as carbon dioxide and ozone.While some observers believe that growing
amounts of carbon dioxide in the air will increase plant growth, other
scientists have a different opinion.Steve Long, a researcher at the University of Illinois at
Urbana-Champaign, has conducted open field trials of enriched carbon dioxide
amounts in conjunction with the U.S. Department of Agriculture Research
Service.His trials, over a period of
three years, found unexpected complications from high carbon dioxide levels,
including an increased lifespan of destructive Japanese beetles and a reduced
mineral content in soybeans.

Internet
Research Tips:

Here are some
useful web sites you won’t want to miss.Also, see our “Contacts” chapter for hundreds of resources hand-selected
by our editors. (Plunkett Research
Online subscribers should use the “Organizations and Associations” tool.)

The ERS is the main source of economic
information and research from the U.S. Department of Agriculture.Its web site provides a wealth of information
on topics from nutrition to food consumption to biotechnology and agriculture.

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industries. Its sectors range from taxis
to trucks, airplanes, trains, courier services, ships, barges, warehouses and
logistics services. To a growing extent,
it now also includes the use of robotics and artificial intelligence in terms
of self-driving cars and trucks, and eventually may include a significant level
of robotic delivery vehicles. Robotics
are already providing a high level of automation in ports and warehouses, while
artificial intelligence is being applied widely to the supply chain. In total, during 2016, core transportation
revenues in the U.S. were an estimated $1,058.0 billion, according to Plunkett
Research estimates. Worldwide, these revenues
were an estimated $4.7 trillion. This
includes air, rail, water, pipeline, courier and warehousing segments. At about 6% of global economic activity (GDP),
transportation's core sectors add up to a remarkably efficient industry,
considering the fact that transportation is a vital service to nearly every
other sector of the economy. In fact,
thanks to increasing use of advanced information systems and such strategies as
intermodal containers (sending freight via containers that are easily
transferred from ship to rail car to truck as needed, without repacking), the
transportation industry's productivity is excellent. Over recent years, globalization placed intense
new demands on the transportation and supply chain sector. FedEx, for example, provides a wide variety
of freight and package delivery services in about 220 nations worldwide.

Retail, with nearly 15.7 million employees in
America alone (more than one out of 10 workers), is one of the largest
industries in the world. Retail sales in
the U.S. totaled an estimated $5.733 trillion during 2017, according to
Plunkett Research, up about 3.8% for the year, and up dramatically from only
$4.0 trillion during 2009. Total sales
were $5.523 trillion in 2016 according to the U.S Census Bureau. (Sales at stores selling general merchandise,
apparel, furniture and specialty items, referred to as “GAFO,” totaled $1.3
trillion in 2016. GAFO is an important
distinction. In contrast, retail sales
of all types are considered to include automobiles, gasoline and restaurants.) Factors that will
impact the retail sector in the U.S., Europe and most Developed Nations:·
Consumers
are reluctant to increase debt. This
means that many people wait to purchase until they can pay cash. ·
In
the U.S., a very low unemployment rate and an improving economy, as of late 2017,
point to a reasonably good retail environment in 2018. Nonetheless, consumers will remain cautious. ·
Consumers,
are less interested than in the past in buying clothing and more interested
spending on travel, experiences, automobiles and home remodeling or repairs. “I want great experiences and memories, not
more things,” has become a popular line of thought among younger consumers. ·
Consumers
are benefitting greatly from

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living organisms (such as bacteria), biological processes or biological systems
to create a desired end result or end product.
Primary markets for biotechnology include: 1) Agriculture, where genetically-modified
seeds are now in wide use in many nations.
These seeds deliver plants that have much higher crop yields per acre,
and often have qualities such as disease-resistance, resistance to herbicides
and drought-resistance. 2) The
manufacture of enzymes, including enzymes used in food processing (such as the
making of certain dairy products) and in converting organic matter into ethanol
for fuel. 3) Pharmaceuticals, where
biotechnology creates such therapies as antibodies, interleukins and vaccines
based on living organisms (as opposed to the chemical compounds that make up
traditional drugs) that can target specific cellular conditions, often with
dramatic results (such as the drug Keytruda that famously fought brain cancer
for former U.S. President Jimmy Carter). Biotechnology is a modern word that describes a
very old science. For example,
bio-enzymes have always been essential in the production of cheese. The modern difference is that much of the
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called microbial chymosin. This chymosin
is made by cloning natural genes into useful bacteria. Another example: For thousands of years, mankind has used naturally-occurring
microbes to convert fruit juices into wine. Analysts at global accounting firm E&Y
estimate global

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